Container Terminals Concessions in Global Ports per Type of Transaction

Container Terminals Concessions in Global Ports per Type of Transaction

Source: Farrell S. (2012): The ownership and management structure of container terminal concessions, Maritime Policy & Management, 39(1), 7-26 

Tracking the terminal concessions process in world ports reveals that more than one out of four ports have assigned terminals through some form of competitive tendering. In most cases, this has been a formal process, beginning with a published invitation to interested parties to submit expressions of interest, the issue of tender documents containing information on the project and the mechanism by which the concession is to be assigned, and a pre-determined process for evaluating the bids. In a few cases, however, the process has resembled an informal beauty contest, in which two or more companies set out their proposals in private, with the concession assigned to the one which is judged to be the most suitable bidder.

As an alternative to competitive tendering, concessions negotiated with a new entrant or a company already operating in the port (the incumbent) have been endorsed in almost half of the ports. Negotiations with incumbents include concession renewals and the involvement of existing general cargo stevedores in the development of container terminals in the 1970s and 1980s. More than 100 of the current concessions have been negotiated with incumbents. Local stevedoring companies form the largest group, but incumbents also include national shipping lines, shipping agents, and freight forwarders. Another category of incumbents can be found in China (Dalian, Qingdao, and Tianjin), where successive terminals in large ports have been built by the existing operators, but with modifications to the consortium ownership structure at each stage to bring in additional partners.

The ‘other’ category comprises semi-dedicated terminals leased to partnerships of stevedores and container lines on a regular renewal basis. What is striking about this category, apart from the large number of separate terminal leases it generates in each port, is its concentration on the West Coast of the USA and Japan, with common features on both sides of the Pacific.

In Japan, shipping lines and stevedoring companies may be linked through keiretsu, vertically integrated groups of companies with inter-locking share ownerships, such as Mitsui & Co. Ltd. This makes it difficult to establish exactly where management control over terminals resides.

Regarding the geographical balance:

  • The proportion of competitively tendered concessions is highest in Central and South America, where the concessions process has primarily involved the divestment of public assets. In Brazil and Uruguay, terminal operating rights have been publicly auctioned. Elsewhere, the ‘two envelopes’ system has been more common, with bids evaluated on technical and financial criteria. The main exceptions to competitive bidding in this region are found in Colombia, where whole port concessions have been awarded to Sociedades Portuarias Regionales, umbrella organizations of local stakeholders.
  • The proportion of competitively tendered concessions is lowest in North America, which has a strongly entrenched private stevedoring industry, access to capital markets and local taxpayers for the funding of new berth construction, and a high level of inter-port competition. Local authorities have been more willing than elsewhere to build new terminals on demand for individual stevedores and/or shipping lines, even though this has resulted in below-average use of port assets. There has not been much interest in using competitive tendering to select the most efficient operator until recently.
  • The relatively low proportion of competitively tendered concessions in Asia is due to the large number of new terminals located in China, which has had a strong preference for negotiated deals with large foreign operators based on the creation of joint ventures. India has developed quite elaborate rules for the competitive assignment of concessions in Major Trust Ports but has been slow to implement its divestiture program; new greenfield terminals have been mainly built outside of the Major Trust Ports, authorized by individual State governments which have generally favored negotiated deals.
  • Europe, the Middle East, and Africa occupy the middle ground. Europe’s long private stevedoring tradition has resulted in a high proportion of leases being assigned to incumbents, particularly in Northern Europe. Although the concessioning process in German ports still favors local operators, terminal operations in the Netherlands and Belgium were opened up to outsiders in the 1990s through competitive bidding and merger and acquisition activity, a process which only began in France in the mid-2000s. However, competitive tendering has been an important component of the port reform process in the Mediterranean countries and is now beginning to be used for greenfield projects in Northern Europe and in response to shortages of capital and space. Within Europe, there has been a marked increase in the use of competitive tendering.
  • In the Middle East, competitive tendering has been important in some countries (Syria, Lebanon, Jordan, Saudi Arabia). Still, in the UAE, contracts for the management of smaller ports, such as Fujairah and Mina Zayed, have been directly negotiated with DP World. Oman has also preferred negotiation as a means of bringing in foreign expertise and funding to its centrally controlled ports system.
  • In Africa, the World Bank has provided technical assistance to countries wishing to follow the competitive tendering route. Still, the desire to retain some degree of public sector control over ports has led to an almost equal number of negotiated deals.
  • Australia has recently moved to competitive tendering in order to increase intra port competition and break the duopoly of the incumbent terminal operators.

Global trends are less clear, however, as the increase in competitive tendering generated by divesture programs in Africa and Central/South America has been largely offset by the number of new terminals in China, which have been non-competitively concessioned.