PORTSFrom barriers to trade to super efficiency in 60 years

INTRODUCTION• Ports fifty years ago were serious barriers to trade: inefficient, expensive, over

manned and restrictive labour practices.

• These problems gave incentives for radical changes - first mechanisation, and secondly port reforms, esp abolition of government monopolies and introduction of competition.

• Today general cargo is handled 20 times as fast, and at one third of the cost, of fifty years ago.

• But in some countries misguided attempts at regulation have held the ports back.

• This talk will trace the steps via which the port efficiency was transformed; and which reforms have worked best, and which less so.

• In particular, it compares experience and policy in the UK with that abroad, where the ports are often more efficient

THE OLD DAYS, PRE REFORM, IN THE UK

• 1947: Two years after WWII ended the UK government passed a law that ruined the UK’s ports for the next 42 years.

• It introduced the National Dock Labour Board, which guaranteed dock workers minimum payments for a guaranteed number of working hours, even if they were not required; and it later gave the dockers jobs for life.

• There were good reasons for introducing it. It replaced the humiliating “On the Waterfront” / “You, you and you today” practices of the 1930s.

• But this version of monopoly labour turned out to be even more corrosive than monopoly in industry.

THE OLD DAYS, PRE REFORM, IN THE UK

• After 1947 there were 20 years of over manning, strict demarcation rules, and strikes. Cost were rising fast, and productivity was low.

• Ports handled 1000 tonnes per metre of quay per year, only 5% of today’s throughputs. Ocean going ships spent 60% of their time in port and only 40% at sea

• 1966. An American trucker, Malcolm Maclean, experimented by detaching and loading the whole unit containing the cargo from the truck. And so containerisation was born.

• With containerisation , the jobs guaranteed by the NDLB were no longer needed. At this point, the UK had 65,000 registered dock workers but now needed only a small faction of this number.

• At the same time, the Government had taken over control of UK port investments over £0.5 million, via the National Ports Council, established in 1964, and lasted until 1980.

THE OLD DAYS, PRE REFORM, IN THE UK

• 1966-1971. Over the five years the over manning and restrictive work practices brought the UK’s ports top two ports – London and Liverpool – into bankruptcy under the National Ports Council.

• But there was another reason for the fall of the great British ports. The small port of Felixstowe built container terminals; and took a large part of London’s and Liverpool’s general cargo traffic.

• 1971-1989. The private port of Felixstowe enjoyed most of the container traffic and the other ports, mostly run by Port Trusts, languished under the burden of the NDLB’s jobs for life.

• It was not until 1989 that the much needed reform was passed: Mrs Thatcher abolished the NDLB. By 1990 the number of dock workers had fallen from 65,000 in the sixties to under 10,000- despite traffic having doubled.

• And two years later the top ports were instructed to privatise themselves. • We will return to this. But first let’s look at ports outside the UK, where most

of our work had been over the years

PRE REFORM: ABROAD

• Ports abroad had similar problems , although usually not as bad as the UK’s under the NDLB, Only a few other countries, including Pakistan, had such schemes. But many of them did have militant labour unions.

• They, like the UK ports in the 1960s, were often highly inefficient, expensive, and plagued with over manning and restrictive labour practices. They: 1. Made large losses2. Were a mess, littered with rubbish, rusty steel and mud; and

they spawned shanty towns outside in developing countries3. Were barriers of trade in many countries – although in those

days import substitution dominated economic policies

PRE REFORM: ABROAD

• Most of the work abroad was in developing countries, and much was funded by World Bank and Asian Development Bank

• It was straightforward work, of two main types:

1. Building new modern port facilities that were sorely needed to support economic growth, applying the cost benefit principles of Little and Mirlees, and with lots of queuing theory and simulations.

2. Making recommendations for operational improvements. It was standard practice to investigate how ports could get more out of the existing terminals before recommending new investment.

PRE REFORM: ABROAD

• The first was a great success, as the infrastructure was necessary.

• But the operational efficiency recommendations were often a waste of time.

• And then the good port construction projects ran out. They had all been built.

• At that low point, came the reforms that made the ports interesting again.

POST REFORM: ABROAD• There were three breakthroughs in the 1980s.

• 1 In the world of aid agencies, the World Bank and others switched to structural adjustment loans rather than loans for projects.

The conditionality imposed on ports focused on: -abolition of government monopolies and-introduction of competition where possible-privatisation, usually in the form of granting concessions to

run terminals; -deregulation of entry, investment and tariffs;

. There was now a general consensus on the desirability of the withdrawal of port authorities to a landlord role, with all operations carried out by private companies in a competitive environment.

POST REFORM: ABROAD

2. The second big change was the rise of the International Terminal Operators (ITOs), who have taken over port operations in many countries throughout the world over the last 20 years.

3. Thirdly, shipping lines started running terminals, usually very efficiently

4. Fourthly, the switch to export led growth meant that inefficient ports had to change.

POST REFORM: ABROAD• The reforms were a great success. For example when India’s top port,

Nhava Sheva, granted its first private concession it achieved productivity levels three times as high as at the state-run operations; and tariffs have often fallen sharply at the private ports.

• And if we compare the long term productivity changes over the period 1960-

2000, they might be roughly as follows:1960s (a) 1995 (b)

General cargo,000 tonnes handled per metre of quay 1000 20,000,

% of ocean going ship time in port 60% 25%

(a) in conventional general cargo vessels(b) in the container vessels that now handle the general cargo

REFORMS IN THE UK• The UK’s reforms were rather different from those abroad.• The main difference was that they obliged the main ports to privatise

themselves in an unusual way - lock stock and barrel in 1983 and 1991. The UK is the only major country to have privatised this way.

• Almost all other countries – Germany, France, Japan, Italy, Spain, even the US, the standard bearer for free enterprise – have retained their public harbour authorities.

• They did, however, increasingly adopt the Landlord model:, with all terminals run by the private sector.

• The UK reforms seemed dogma driven, and had the unfortunate consequence that, to some extent, the new private companies often focused on property sales and financial dealing.

• But the privatised UK ports performed reasonably well - at least for a time • The great advantage of the UK is that are enough ports around the coast to

ensure INTER-port competition, which should be as effective as the INTRA-port competition

REFORMS IN THE UK• Secondly, the UK ports became a victim of “regulatory creep” - by

which the scope of government regulation is allowed to extend beyond its original purpose.

• In theory, UK port policy is to “leave the industry to market forces”. This policy was laid down by the conservative government in the 1980s, and confirmed in 2000, and again in 2010

• But they have not been allowed to do so. In practice, the ability of the ports which have attracted traffic to build new berths has steadily come under the control of regulatory processes which have little to do with ports.

• The government has allowed these obstacles to “just grow”. In practice, port investment has been highly regulated, not by transport specialists but by planning inspectors.

REFORMS IN THE UK• They are dominated by the Royal Society for Protection of Birds,

and grouped together at one stage into Portswatch - whose other members are the Whale and Dolphin Conservation Society, the Campaign to Protect Rural England, the Marine Conservation Society, the Wildfowl and Wetlands Trusts, the Wildlife Trusts, Transport 2000, the Marine Conservation Society and Friends of the Earth.

• They pointed to the dangers of the shoreline of the UK being paved with concrete (in fact the total length of Britain’s deep sea container terminals is less than five miles, mostly in Felixstowe) and the effect on wildlife.

• Their manifesto referred to the “profound effects of ports on local communities who must live next door to the 24 hours a day, seven days a week port operations”.

• The objections of the environmentalists have obliged the port developers to go to planning inquiries. Once there, the obstacles to responding to market growth multiply.

REFORMS IN THE UK• The remit of the inquiries goes much further than just weighing the

relative merits of economic gains from the port expansion against environmental losses. The key stumbling block is that the planning inspectors now also have to decide whether there is “a need” for the port expansion.

• These planning enquires have effectively immobilised large parts of the ports industry.

• Dibden Bay, which was the largest new container terminal planned for many years, had been in the planning pipeline for 7 years before being turned down for environmental reasons.

• Its traffic growth was the highest of the main container terminals; but further expansion was ruled out.

• At one stage Hutchison - the world’s largest container terminals operator with worldwide interests, including ownership of Felixstowe and Thamesport - stated publicly that of the 16 countries in which it operates, the UK is the most difficult in terms of planning.

REFORMS IN THE UK• Most of the obstacles and delays stem from environmental objections. And

while environmental concerns are now rightly given great weight throughout the world, there is a common view that the UK’s environmental regulation is stricter than in other countries.

• Many of the environmental rules originate in Brussels. But UK’s interpretation was said to be “gold plated” versions of the Brussels originals.

• For example, Hutchison, the world’s largest container terminal operator, stated to the press that “the EU rules on Special Areas of Conservation (SACs) are applied more strictly in the UK than on the continent”.

• In brief, the freedom of the ports to expand when necessary to handle the cargo they have attracted had been gradually eroded. The mantle of port regulator had been passed via regulatory creep to the planning inspectorate. It presided over planning inquiries in which environmental interests have made clear gains over economic interests. Their limited experience of ports combined with their focus on land use planning meant that the ports industry was effectively controlled via the procedures for land use decisions.

REFORMS IN THE UKThe results of this regulatory apparatus are that: • There has been a deficit of capacity in some years. • The lack of surplus UK capacity has limited competition, and container

handling speeds have fallen badly. A major shipping line’s statistics showed the following average handling speeds in 2008 for ships on the Far East routes:

• (Moves per crane hour)• Belgium 33• Germany 28-30• Rotterdam 25• Southampton 22• Felixstowe 19• Le Havre 19• The transhipment business that used to account for 25% of UK container

traffic has been lost to European ports,

REFORMS IN THE UK

Aware that the planning procedures were out of control, the government set up an Infrastructure Planning Commission in 2009 and issued a National Policy Statement for ports to speed up decision making.

But if a new Conservative government is elected his year it will scrap it.

CONCLUSIONS.Ports have made great progress worldwide in the last 30 years, But government involvement has often been counterproductive, especially in

the UK, where: • The introduction of the NDLB in 1947 undermined UK ports for the next 42

years• The government’s National Ports Council took control of national port

planning and investment between 1964 and 1980 but saw the country’s top two ports going bankrupt on their watch.

• The privatisations of the ports wholesale via the acts of 1983 and 1991 resulted in less competition between terminals than abroad, where the public landlord port authority usually presides over several competing terminals. The UK container port business has remained a duopoly.

• The undermining of the supposedly market driven UK ports industry by regulatory creep in the period 2010 has resulted in no container terminals being built for a decade.

• The results have included (i) a deficit of capacity in some years, (ii) productivity well below NW European levels (iii) and loss of the transhipment business that used to account for 25% of UK container traffic.