PORTS: the gateway to global supply chains.

The Global Supply Chain refers to the worldwide network of consumer goods and industrial products.
Ports accommodate products (trade) as they are transferred between suppliers, manufacturers,
distributors and retailers.

This trade Is increasing → need for more capacity & handling in port. Why? Because supply chains are
becoming global (products are less produced locally and more produced in other countries). If they
successfully are able to accommodate more, it means the products we consume will be cheaper. It
places environmental burning on society for more infrastructure.

Types of cargo;

Cargo ship and loading systems can be specially designed to carry just one type of unpackaged material
called bulk.

 Dry bulk: includes coal, ore and grain.

 Liquid bulg: oil, liquid fuel and other chemicals.

Each account for 1/3 total shipments.

Before the introduction of containers in the 1960´s, were conventional cargo (traffics that can't be
transported in large quantitates and have generally higher value like steel products, paper, wood). For
example, cars specialized shipping.

Since de 60´s, products which were formerly sent in various packages needed very intensive labor vs
now that we have specialized ships for banana we can use more standardized technology and go as far
as having no people involved reducing the costs.

It has evolved very rapidly in the last 50 years, the ships have been getting bigger and therefore the
costs of shipping between ports have been reduced dramatically. With these, smaller producers can
access worldwide market.

Ports worldwide are ranked based on 3 categories;

 1. The volume of material handled (largest)
2. The quality of the cluster (best port)
3. The speed of loading and unloading container ship (best terminal)

Largest ports are in China, the next one is Shangai and then all ports in Asia and elsewhere. The largest
in Europe (Rotterdam ranks like 9 th), the US one don´t even make it on the ranking. Any kind of grouping
of ports may be considered different.

The best quality top 3 are Netherlands, Singapore & Honk Kong, it ranks based on the infrastructure.

The best terminal is based on general commerce, and the best one is in Dubai.

There is much more to port performance than these indicators / rankings;

 The economic impact: how much wealthier does a port create, the contribution to the gross
domestic product (compare performance of economies as a whole), the creation of
employment. You can also rank the most employment giving port, and it cannot necessary
coincide with the three previous.

If you understand how trade is going to evolve, you can plan / strategies to accommodate the growth.
Three main factors that explain why trade is growing;

1. Growth of GDP: if an economy is growing, the purchase power is going up, people can buy more
products → trade growths.
2. Trade agreements and lower trade barriers: removing / reducing barriers drives trade. If a
country joins a trade agreement it will actually start to trade 80% more to the country in the
trading block.
3. Transport cost: if you reduce the cost, you make it easier to trade goods.

Improving port efficiency by moving away from the lower 25% of ports, to the upper 25% can lead to an
increase up to 50% in trade. The key is to understand what will the GDP do, what the port itself do (how
much efficiency improvement can be made in shiping) and will it be increasing integration in countries
because of trade agreements that make the country more attractive to trading.

These relationships change over time. For example in the early 2000´s the link between GDP growth and
container growth → 1% of GDP growth meant 3% of growth in the container market → now shiping is
being linked to economies of trade, now this relationship has gone down to less than ½ that it was.

 Advanced economies: the port industry is a very mature one. In the UK the volumes handled by
ports haven´t grown since the 1990´s (there has been growth in specific segments, but not as an
overall), same in the US.
 Emerging economies: the growth prospects are huge. Kenya has the port of Mombasa, given the
economy development the port infrastructure cant keep up with the growth. More companies
are deploying activates and need the infrastructures to move the goods in & out (these
governments have large ports expansion plans).

There are countries where the ineficiency port infrastructure is hampering the economy, like BRazil
where there are ques of ships for 30 days of more waiting to trade agricultural products and the fees are
crazy high. Eficcient port are vital.

Most big cities were built around a port, nowadays they might be not so important. Ports generate
wealth, attract employment.
Port clusters: bundle of assets / infrastructure. Inhabited by companies & organizations, like handling
and storage of goods, manufacturing (some ports specialize in attracting these kind of companies),
advance service provides (need acces to capital, like specialized law firms in transport or security, etc.),
port authority decides who gets land & under what conditions, regulating everything (in most countries
it´s a public or semi – public entity).

How do you keep existing companies interested and investing in your port. You have to think how
competitive is my cluster;

 Quality infrastructure
 Stable regulatory environment
 Competitive energy cuts
 Services connected to port
 Labor productivity
 Cost of ports

Factors investors look and asses to decide if the investment will take place in a port or another. The
competition is more local. A port with good connections is difficult to steal from.
Larger ports have bast hinterlands that may cross national borders.

 Captive: the port faces no competition.

 Contested: ports are competing with each other for cargo.

Many ports have very small captive hinterland. It can have slighlty elevated prices wich will not matter
because companies will still choose them because they have close to no competition. It brings market
power, and you can potentially abuse it.

Politicians pay too much attention to employment, they like employment creation, like stories about
them and tax revenues.

The fact is that port are there to connect consumers and producers. As an economist you look at a value
creation, the key word is not jobs but CONNECTIVITY. That has much more value than a few jobs.
  Global level: waste in the oceans (ships throwing garbage overboard because its simple and
doesn´t cost money → regulatory framework thar forces & incentives ships to dispose it on
land). Co2 emissions, the key issues is in the manufacturing and port related industries.
 Local level: equality, emissions of ships and terminal facilities that lead to high occurrence of
small particles unhealthy in the air (life expectancy is lower in ports than the country cause of
bad air quality). Noise pollution, impact on sleeping patterns (create some sort of separation
between ports and residential areas).

Invest in more environmental friendly vessels. The key lies with multinational powerful companies.

Loss of natural habitats and biodiversity → problem in port expantion. Working together with nature
organizations is a very good cooperation mode.

Environmental legistlation have impacts on ports, some expantion plans have been stopped for
example. The key is to make their operations more environmental friendly.

The ships have many emissions (Co2 and sulfure oxide), the 15 larger containerships emit as much
sulfure oxide in a year than the whole world car fleet. Is this a fair comparison?
How can more sustainable energy sources compete with fossil fuels that is still relatively cheap? What
kind of regulatory framework is needed to make sure that the transition to more sustainable energy is
taking place more sooner rather than later.

How do we use big data to make the supply chain more efficient? There is a gap between what is
feasible in terms of technology and how ports are run today. To make decisions about vessels speed (in
a lower speed it reduces the amount of energy needed) for example.

The transition to cleaner fuels. Boats can run on LGN (much cleaner than ordinary fossil fuels) →
requires innovation, new infrastructure for LGN and for ships to source it.

Circular economy: all byproducts instead of turning into waste are used again. For example, the CO2
emmited cand be launched to the greenhouse effect or if it has value for something else. All parties
must work together in order to achieve these projects.