The Greening of Terminal Concessions

Towards green concession agreements and processes

Source: adapted from NOTTEBOOM, T., 2010, Green concession agreements: how can port authorities integrate environmental issues in the terminal awarding process?, Port Technology International, issue 47, Autumn 2010, ISSN 1358 1759, p. 36-38

One emerging field of action for landlord port authorities relates to the inclusion of green factors when awarding terminals to private terminal operators. Land for port development is scarce, making the concessioning of terminals to private stevedoring companies a prime task of landlord port authorities. Key issues in the concessioning of terminals include the allocation mechanisms used for granting seaport concessions, determining the concession term and concessions fees. The inclusion of special clauses in the concession contract aimed at assuring that the terminal operator will act in the interest of the port authority and the wider community (for example, throughput guarantees) is common. A well-designed concession policy allows port authorities to retain some control on the organization and structure of the supply side of the port market while optimizing the use of scarce resources such as land (for a full analysis refer to Chapter 3.5).

When deciding what site to award, port authorities could more explicitly look at the environmental quality of the port site. Brownfields might be more expensive to redevelop but often lead to higher spatial quality and regeneration of older port sites. Port authorities could also include more stringent construction guidelines for port infrastructure and superstructure. Such measures could include using a minimum percentage of green energy or the installation of cold ironing facilities.

In the awarding or selection phase, port authorities often include a pre-qualification stage. The number of candidates is narrowed down based on minimum requirements related to their financial strength and relevant experience in operating facilities for similar cargo in the same or other ports. Environmental performance can constitute a new additional element in the qualification phase of a terminal awarding process. By doing so, possible candidates are rewarded for their market scale and financial potential and have taken initiatives previously to develop a green policy at other terminals in their portfolio. There is scope to more explicitly integrate environmental performance in the selection process next to more traditional criteria such as throughput expectations, financial performance, the price bid, and socio-economic impacts in terms of value-added created and employment effects.

Port authorities should also consider the inclusion of green elements in the post-bidding phase, such as by including environmental clauses that go beyond simply stipulating that the terminal operator will have to comply with local, national, and supranational environmental legislation. Such environmental clauses could refer to:

  • The compulsory use of some sort of environmental management reporting system.
  • Stipulations on emission levels.
  • Specific technical equipment to be used to limit emissions.
  • Causes on existing or future contamination of the terminal site.
  • Modal split targets.

A small number of recent terminal contracts include modal split specifications, particularly in a container terminal context. This mostly takes the form of some technical specifications and compulsory investments to be done by the terminal operator in hinterland transport infrastructures on the terminal site. In only a few cases, the modal split clauses explicitly impose a specific modal split on the terminal operator to be reached by a certain year (for example, 40% road, 40% barge and shortsea, and 20% rail by 2025). The modal split target is often formulated as a soft objective (an intention). However, soft targets are best kept outside the contractual setting as they cannot be legally imposed on the terminal operator. The port authority can encourage terminal operators to reach soft targets by favorable pricing or awarding systems (the ‘carrot’ approach).

The setting of hard targets in the concession agreement implies a ‘stick’ approach with binding clauses and enforcement (penalties for non-compliance). In following such a stick approach, port authorities often face the problem of posing credible threats. For example, terminal operators confronted with ‘hard’ modal split clauses will argue that the distribution of cargo over the various inland transport modes is largely affected by exogenous factors such as the supply chain practices of their customers, the pricing and quality of rail and barge services and the infrastructure policy outside the port area (by the government). However, terminal operators can positively influence the modal split on their terminal through pricing (for instance, a dwell time fee system or pricing of moves to inland transport modes), actions to increase the transparency of information flows (which makes cargo bundling towards rail and barge easier) and extended gate solutions in the hinterland (for instance by setting up satellite terminals in the hinterland).