Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom
Ports clusters consist of geographically concentrated and mutually related business units centered around transport, logistics, trade, and industrial production.
1. Port Cluster Formation
Ports are clusters of companies and economic activities. Port clusters exhibit strong scale and scope advantages linked to physical cargo flows. The concentration of activities opens more opportunities to the bundling of cargo flows via intermodal transport (shortsea, barge, or rail) and to achieve higher connectivity to the rest of the world via frequent transport services. The process of cluster formation takes place at two scales. The first concerns the clustering of ports around a maritime range, and the second concerns the clustering of activities around a port.
There are important geographical attributes behind port cluster formation, which varies substantially by maritime range, mainly owning to the following constraints:
- Availability of port sites. Coastal geography varies across ranges, impacting the number of suitable port sites because of factors such as protected bays, river deltas, and tidal ranges. Such characteristics are related to the distribution of cities where a coastal cluster of cities is more prone to forming port clusters reflecting the urban system. Also, container terminals require a substantial amount of real estate for piers and yards, that is challenging to find. Coastal geography attributes along a maritime range are generally prone to cluster formation.
- Administrative divisions. Nations states commonly have their own cabotage rules and restrictions, which can impact how hinterlands are serviced. In a context of limited economic integration, adjacent national states, or even administrative divisions, a dedicated container port can be serviced with the level of activity constrained by the size of the administrative unit. This can also incite the over-supply and duplication of port infrastructure, giving the illusion of a port cluster. Simultaneously, the absence of administrative divisions would have generated ed to fewer ports, or even a single large port, to service this hinterland.
- Hinterland accessibility and density. Economic development, urbanization, and the distribution of resources imply an uneven hinterland density. As major economic regions are structured along corridors, this concentration favors specific container ports and port groups servicing these areas. The higher the density, the greater the propensity for clustering. Therefore, the nature of the hinterland influences cluster formation.
- Economies of scale and infrastructure. The growing average size of containerships tends to restrict port choice because of draft limitations and underline the capital intensiveness of containerization. In turn, this incites a concentration of investments and infrastructure in a specific number of efficient container ports in order to generate enough traffic and economic return. Technical and technological developments an lean towards cluster formation.
The above constraints result in the geographical distribution of the world’s major container ports along several large clusters of port activity:
- The Yangtze River delta with ports such as Shanghai and Ningbo.
- The Pearl River delta with Hong Kong and Shenzhen.
- The Strait of Malacca with Singapore and Tanjung Pelepas.
- The Rhine / Scheldt Delta with Antwerp and Rotterdam.
- The San Pedro Bay with Los Angeles and Long Beach.
2. Activities in Port Clusters
A. Transport and cargo handling
Ports use infrastructures to channel ships and vehicles and to accommodate cargo and information flows. While other typologies might be found, a distinction can be made between basic nautical infrastructure (such as access channels and locks), commercial port infrastructure (such as quay walls), and port superstructure (such as cranes, warehouses). The construction, operation, and maintenance of these infrastructures constitute a key activity in ports. For example, dredging companies execute most of the capital and maintenance dredging works in seaports and are involved in land reclamation projects. The development of new terminals, port zones, and intra-port and inland access infrastructure offers project work to consultancy firms, contractors and construction firms, to engineering firms, and to all sorts of suppliers of technical equipment and services.
The call of a vessel in a port generally requires the involvement of towage companies, pilotage services, mooring/unmooring services, the harbor master’s office (part of the port authority or government department), lock operators (if any), ship agents, companies involved in signaling and shipping services, waste reception facilities, ship suppliers and chandlers, marine surveyors, bunkering firms, classification societies, safety contractors, and security firms. Quite a number of ports also offer ship repair facilities or are home to shipyards.
Cargo handling operations in ports can relate to different types of goods: liquid bulk cargo (crude oil, oil products, LNG), dry bulk cargo (coal, iron ore, grain), roll-on/ roll-off cargo (new cars, used cars, rolling material, trailers), containerized cargo and conventional general cargo. Conventional general cargo encompasses a myriad of different non-containerized commodities such as project cargo (power generation plants, steel mills, wood-pulp factories, gas power plants, road construction equipment), power plant equipment (gas turbines, power generators, transformers, turbines, heavy machinery, industrial equipment), iron and steel products (bars, coils, plates, wires), forest products (wood and paper products), parcels (malt, fertilizer, sugar, rice), reefer vessel trades (fruit, meat) and breakbulk shipments of smaller lots.
The efficiency and effectiveness with which loading and discharging activities occur in a port are important cornerstones for the port’s competitiveness and its ability to generate broader economic effects in employment and value-added creation. Cargo handling in the first place involves terminal and stevedoring companies that employ or use dock workers. The dock labor needs are very dependent on the cargo flows handled in the port. Other cargo-related service jobs include cargo survey, land transport and storage, port-related storage, conveyor/pipeline, and transfer between berths and storage facilities. Generally speaking, conventional general cargo handling is confronted with ever-tighter handling space in many seaports (containers consume more and more square meters). Given the strong labor intensity, it is also sensitive to labor-related issues.
Government agencies and organizations develop activities linked to cargo and vessel operations in ports. Semi-public or public managing bodies of ports are important players in the port arena, depending on the tasks the port authority adopts. Government agencies typically include customs, sanitary and food inspection, environmental offices, harbor police, the pilotage service, state-owned tugboat companies, navigation aids, and vessel traffic systems (VTS), firefighters, and maritime courts.
Military activities such as naval bases can also be found in seaport areas. The permanent stationing of naval fleets in a seaport or visits by foreign naval vessels may affect a regional economy in the form of purchasing fuel and provisions and the expenditure by crews in the local economy.
Many seaports also act as important nodes for passenger traffic. These passenger flows might be linked to cruise vessels, ferries, and regional river or coastal passenger services. Passenger terminals create direct value-added and employment, but also have an impact on other activities that might be located elsewhere. Examples include tourism agencies, hotels, restaurants, museums, taxi and bus companies, and airports.
Goods can undergo logistics transformations in the port area, which is defined as port-centric logistics. Examples include storage, distribution, and other logistics activities in the framework of industrial subcontracting or postponed manufacturing in the port area. The gateway position of major seaports offers opportunities for the development of value-added logistics services (VALS). Many seaports have evolved from pure transshipment centers to complexes of key functions within a logistics system. A mix of pure stevedoring activities and logistics activities occurs.
Ports are not only nodes handling goods flows. They also deal with large quantities of information flows. Many service companies involved in the booking, consolidation, and tracking of vessels and cargo (freight forwarders and ship agents) are located in the seaport or immediate vicinity. The consolidation of cargo is an important port activity, which generates added value and employment and contributes to efficiency improvements in loading rates and the balance between incoming and outgoing goods flows. Ports often act as consolidation points for partial loads, such as LCL (less than container load) cargo and groupage activities. However, disintermediation in the supply chains and the increasing globalization of the maritime and port industry can imply that some ports face a relocation of some of the decision-making power over cargo flows to inland centers or major (maritime) cities. When cargo control centers are set up outside the port area, the role of the local service providers is narrowed down to specific operational tasks or back-office functions. Therefore, the role of the port in supply chains is increasingly dependent on factors and actors outside the port area.
The branch associations of economic sectors in the port (i.e. freight forwarders, ship agents, industrial firms) and umbrella associations (for example, Deltalinqs in Rotterdam and Alfaport Voka in Antwerp) are involved in the promotion of their respective port sectors. Numerous jobs are created in training and education, not only at the public level (universities, schools of higher education, technical schools) but also in private training centers. A wide range of advanced trade service firms (such as banks, other financial institutions, investment firms, insurance firms, law firms) realize a part of their turnover in ports.
C. Industrial activities
There exists a wide range of industrial activities that typically locate in port areas. Industries that are part of maritime clusters include shipyards (ship repair and shipbuilding), marine equipment companies, crane and terminal equipment producers, salvage companies, offshore companies (offshore survey, exploration, production, installation, supply, pipe laying), marine construction firms, dredging firms, naval bases, and the fish processing industry. Non-maritime cluster industries that are often found in ports include chemical plants, power plants, steel plants, car assembly plants, paper mills, food production companies, and firms producing building materials (cement, bricks, tiles).
Petrochemical and chemical companies and large integrated centers of industrial activities in seaports constitute an essential part of the economic activity in ports, exemplified by the large petrochemical and chemical clusters in Singapore, Houston, Rotterdam, and Antwerp. These clusters are integrated upstream into primary raw materials, feedstock, commodities, or intermediates and downstream into other chemical industry sectors or key customer industries (automotive, packaging, construction). The petrochemical industry is strongly based on oil refinery activities, many of which are located in ports:
- First, there are the basic chemicals which include polymers (e.g. polyethylene (PE), polyvinyl chloride (PVC), polypropylene (PP), polystyrene (PS) and fibers such as polyester, nylon, polypropylene, and acrylics), bulk petrochemicals and intermediates (i.e. primarily made from liquefied petroleum gas (LPG), natural gas and crude oil and used for the production of ethylene, propylene, benzene, toluene, methanol, styrene), other derivatives and basic industrials (e.g. synthetic rubber, surfactants, dyes and pigments, resins, carbon black, explosives), inorganic chemicals (e.g. salt, chlorine, caustic soda, soda ash, acids) and fertilizers (phosphates, ammonia and potash chemicals).
- Second, the life sciences include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins, and crop protection (herbicides, insecticides, and fungicides). These products tend to have very high prices and require substantial investment in research and development.
- The third group concerns specialty chemicals such as electronic chemicals, industrial gases, adhesives, sealants, coatings, cleaning products, and catalysts.
- The fourth group consists of consumer products that are directly sold to the consumer, such as soaps, detergents, and cosmetics.
The successful development of the chemical clusters in seaports depends on various factors such as:
- The availability of skilled labor at competitive prices.
- Good training and educational facilities.
- The role and support of port authorities and government agencies in providing incentives and support in the development of infrastructure.
- The availability of land
- The availability of raw material supplies at competitive prices.
- Competitive prices for energy and utilities.
- A low-risk and stable business climate and stable regulatory environment.
- Co-siting and partnering opportunities (industrial cascades).
- Relative proximity and easy access to most important customers.
- The availability of efficient services (logistics, finance, IT, packaging, security, marketing, promotion).
Industrial clusters in ports often rely on sustainable industrial symbiosis or sustainable industrial ecosystems. Raw materials are extracted locally, and finished products and secondary flows are used locally. By-products of the production process (for example, oxygen, heat, or water) are recycled and reused locally. This ensures far-reaching industrial and circular integration and the creation of so-called ecologies of scale. Such symbiosis requires supporting infrastructures, such as pipelines and storage tanks, to transport raw materials and finished products to the correct location. Thus, a competitive cluster requires good inter-company infrastructure (e.g. pipelines), product diversity, the sharing of utility services and infrastructure, and strong cluster governance. Chemical clusters are increasingly overcoming regional boundaries by developing pipeline systems and other mass transport infrastructure that link chemical clusters in several ports (e.g. pipeline linkages between Rotterdam, Antwerp, and Terneuzen) and also link the ports to major chemical clusters in the hinterland (e.g. links between the Rhine-Scheldt Delta ports in Belgium and the Netherlands, the chemical axis along the Albert Canal to Liège in Belgium and the German Ruhr area).
Many of the world’s steel plants are located in seaport areas. The steel industry operates in a highly competitive environment globally, where rigorous cost management is imperative for maintaining and strengthening its competitiveness. Therefore, steelmaking processes have been developed and refined over the years. Steelmaking is capital intensive, and the average plant life is very long, which makes changes to new technologies possible only in a timeframe of several decades. Many steel plants are located in seaport areas. A good example is ArcelorMittal. ArcelorMittal operates several maritime flat carbon steel mills (e.g. in Europe: Dunkirk, Ghent, Fos Marseille, Gijon, and Bremen). Most other mills are located less than 100km from major import ports. On the import side, steel plants generate large iron ore flows, pellets, coking coal, metal scrap, and steel slabs. The outgoing cargo flows typically include steel coils, steel booms, steel wires, and related products.
The same applies to the automotive industry. While assembly plants mostly do not locate in seaport areas (for example, only about 10 of the 150 European assembly plants are located in seaport areas), they often locate quite close to seaports for reasons of ingoing and outgoing flows of parts and finished cars.
Many seaports are home to large energy plants. Electricity is produced in conventional steam-electric plants (coal and lignite), conventional steam-electric plants (other fuels), combined-cycle and gas turbine plants, conventional hydroelectric plants, pumped-storage hydroelectric plants, nuclear power plants, waste-to-energy plants, biomass power plants, diesel and gas-engine power plants, wind energy plants, geothermal power plants and solar power plants. The availability of land and cooling water and the presence of large industrial customers are some of the reasons for energy-producing firms to set up business in seaport areas.
Depending on the set-up, conventional steam-electric plants are massive consumers of coal. Growing trends in electricity production include plants that produce electricity based on gas, pellets, waste, or biomass. Stations powered by these fuels present economic advantages, are often faster to build and are more environmentally friendly when compared to electricity production from other (fossil) fuels. There is also an increased interest in wind energy. While most wind farms are installed offshore (mostly on sandbanks) or in open plots in the hinterland, a number of seaports are also home to wind farms. These wind farms are typically installed on breakwaters or narrow stretches of land close to the sea, thereby benefiting from favorable winds in coastal areas.
Many seaports also play an essential role in the distribution of natural gas. The gas comes in either via vessels (LNG carrier) using specialized deep-sea terminals or via pipelines that land in the seaport area. The presence of power plants and power distribution infrastructure not only generates direct jobs and value-added in power plants, energy distribution platforms, and the terminal operating business (i.e. handling of coal, gas, and other fuels), but is also a major creator of jobs and value-added in other industries and services such as engineering firms, construction companies, maintenance and repair companies, survey and inspection firms, and security services.
3. Port-Centric Logistics
The clustering of ports is associated with the clustering of logistics.
Port-centric logistics refers to the range of freight transportation and distribution activities that are directly related to port terminals.
Port terminals handle three types of flows, which are inbound (imports), outbound (exports), and transshipment (mostly for containers), each of which is associated with different forms of port-centric logistics. These come into two tiers:
- Port cargo logistics (first tier). The set of activities that directly affect the load unit of the cargo handled at the port. The first is the function of storing where the cargo is waiting to be picked up or transshipped. This usually occurs within the terminal facility (for transshipment, a container rarely leaves the terminal facility), with the dwell time an important consideration for supply chain managers to organize pickup. The de-stuffing (and often palletization) of container loads is an important activity that takes place at nearby specialized facilities. Transloading is also commonly associated with de-stuffing activities as it transfers loads of maritime (ISO) containers into domestic containers. Empty containers are then repositioned either back to the container terminal or to an empty depot. Containers are then available to be picked up for stuffing and then exported.
- Port-related production and distribution (second tier). Activities that perform a level of transformation (in whole or in part) to the cargo that is either imported or exported through a port. Inbound cargo, particularly finished goods, must be consolidated and sorted in distribution centers for hinterland customers. Outbound cargo is usually warehoused waiting to be loaded (break-bulk cargo) or stuffed (containerized cargo). Manufacturing activities that are closely dependent on global markets, either for inputs (suppliers) or outputs (customers), will tend to be located in the vicinity of port areas. The commodity sector has traditionally shown a high association with port terminals (e.g. petrochemicals), which has usually endured. However, the growing use of containers to transport commodities such as agricultural goods, including refrigerated goods, conveys a new dynamic to port-centric logistics.
Moreover, instead of using the stacking area as a facilitator for a smooth synchronization between transport modes, shippers and logistics service providers started to use terminals as places for the temporary storage of consignments. Terminals thus serve as buffers in logistics chains. This has allowed them to develop value-added logistics activities such as:
- Paper-cutting operations at forest products terminals.
- Steel-cutting operations and packaging of project cargo at general cargo terminals.
- Quality control and packaging at fruit terminals.
- Sorting and blending operations at major bulk terminals.
- PDI activities (pre-delivery and inspection) at car terminals.
- Bagging at minor bulk terminals (e.g. plastics).
Containerization had enduring impacts on the relationships between ports and their hinterlands. These relationships shifted in time with dissociation in the earlier phases of containerization and the recent reinsertion phase with port-centric logistics. Port-centric logistics is not a uniform strategy because it is a function of the position of a port within the global maritime transport system and the dominant direction of the flows they handle. In this regard, three main types of port-centric logistics can be retained, export-oriented, intermediate, and import-oriented.
4. Port Cluster Governance
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 for 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 city as a terminal and a hub, which means it acts as a functional freight region. This paradigm is fundamental because:
- 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 of flows.
- 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.
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 better access to competencies and innovative ideas, better access to suppliers and customers, 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:
- Service efficiency. Concerns a series of initiatives to improve the quality and 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 consists of developing port community systems that are making available information to manage terminal-related supply chains, commonly through a web portal. Service efficiency can also involve technical and managerial training to improve labor quality. A standard is thus set among the terminal users regarding 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 up of satellite terminals or inland ports that are accessed through dedicated corridors. The setting up of co-located logistics zones is also common in proximity to the port, rail, or airport terminal facilities.
- Infrastructure and growth management. Although port authorities conventionally undertake both infrastructure and growth management, 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 terminal operators and other private stakeholders such as rail operators and logistical firms.
- Terminal-city integration. Concern various strategies that help mitigate the frequently 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 to promote 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 up of transit corridors and adjacent retailing, office, and housing activities.
The full implications of cluster governance remain to be assessed, particularly the extent to which 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 to improve their respective efficiency. It is to be expected that better access to international markets will 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 transshipment.
- Chapter 4.1 Port Governance and Reform
- Chapter 4.2 Port Authorities
- Chapter 4.3 Port Coordination and Cooperation
- The Port of Savannah Logistics Cluster
- de Langen, P.W. and E. Haezendonck (2012) Ports as Clusters of Economic Activity, in W.K. Talley (ed) The Blackwell Companion to Maritime Economics, New York: Blackwell. pp. 638-655.
- Jacobs, W., H. Koster, and P. Hall (2011) “The location and global network structure of 36 maritime advanced producer services.” Urban Studies, Vol. 48 (13), pp 2749-69.
- Additional references coming.