The Future of Ports: What’s Behind a Global Port Matters Most to its Stakeholders - White Paper

JANUARY 2021

The Future of Ports: What’s Behind a Global Port Matters Most to its Stakeholders White Paper

THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

Introduction The future of globally competitive ports is about more than technology or vessel connectivity. It is one of community, nurtured by the ecosystems and infrastructures that support them.

What are you doing now to ensure that your port operations will remain competitive beyond the next decade? How strong are your international partnerships?

How strategic are your port locations? How well do your ports connect to adjacent sea, air, land, and rail? How diversified are your portside services? How well integrated are your other customer offerings, from marine services to logistics? And, finally, to what extent have you incorporated sustainability into your planning processes?

Summary Tomorrow’s ports will not only be smarter, but they will be also more industry-centric, and they will be far better integrated with their respective landside communities.

Previously ports served to move goods between trading countries, largely those producing and those consuming. Today, ports are much more than simply pick-up and drop-off points on a global trade map. And tomorrow’s ports will be essential centres of commercial activity, drawing vibrant businesses of every size and kind, particularly when they are more centrally located, city-based ports.

Chief among these commercial activities will be manufacturing and assembly.

When one considers the evolution of the modern global port, the role of the adjacent industrial zone is most striking. By relocating a manufacturing plant, which may have been hundreds of kilometres from a port, to within less than 10 kilometres of a port, the economic, environmental, and operational benefits become apparent immediately. This moment is the point at which the modern port begins to demonstrate its irreplaceable value to all stakeholders, from manufacturers to consumers – domestically, regionally, and internationally.

We found that the world’s most competitive ports are already making necessary changes to their business practices to ensure that they can support this new, industry-centric focus required of global ports, including: ∙ Developing strong international partnerships; ∙ Operating strategic global port locations; ∙ Ensuring multimodal connectivity via sea, air, land, and rail; ∙ Offering diversified portside services; ∙ Providing integrated customer services; ∙ Incorporating sustainability into their planning processes.

About Our Research In November 2020, we conducted telephone and video call interviews with global ports experts from the Middle East and around the world.

Our questions focused on strategies being employed to increase port efficiency and competitiveness - we wanted to learn what the world’s leading ports operators were doing to bring a competitive advantage to their businesses and why.

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THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

INTERNATIONAL PARTNERSHIPS: Working with the Best is Important The world’s most competitive ports work with international partners across every facet of their businesses, from technology and logistics to finance and communications.

Port operations is an inherently long-term game, with concessions to manage ports often lasting between 20 to 50; years therefore related partnership agreements also tend to be viewed through a long-term lens and on a longer horizon.

“Leading ports believe in the power of global partnerships, and they work with the biggest and best companies in the trade and logistics business,” explained one operator.

We learned that there is a particular focus among global ports to secure global terminal operators as partners, with respondents highlighting COSCO Ports, DP World, PSA, and Hutchison as the best examples of this.

The purpose of the global terminal operator partnership is clear: to create a self-sustaining eco-system in which an increasing number of network-owned ships call on the port with ever-growing volumes of container cargo, thus creating export and import demand.

We also learned that not all ports seek container volume traffic. In fact, some ports might wish only

to retain bulk terminals for example. In this case, they would seek out the world’s best international partners for bulk terminals, hoping to find what one respondent referred to as “the stickiness” that is all-important in determining the future success of the port.

Ports also frequently enter into strategic tie-ups with international shipping lines, enabling calls on ports that might otherwise not be made. Experts told us of international ports that are served successfully based on international shipping agreements, rather than exclusively practical location. The reason is that international partnership agreements make the calls viable as part of a larger route network, thus demonstrating again the power and benefit of longer-term thinking in global trade.

A key consideration raised by nearly all respondents in our survey on the topic of international partnerships was manufacturing and the proximity of industrial zones and related manufacturing facilities to ports. Again, the proximity of industrial zones to modern ports continues to present itself as a major consideration for foreign direct investors who view overseas manufacturing, shipping, distribution, and trade as being pieces of the same puzzle to be solved.

STRATEGIC LOCATIONS: Hubs and Spokes Matter Global ports of the future must make a concerted effort to push beyond their geographic comfort zones. It is no longer enough to dominate one’s home market or even one’s home region.

Presence along the world’s key trade routes has become critical for those organisations who aspire to become globally recognised players.

“The operation of ports is a local business, so location is everything. Obviously, being directly located on the world’s major transshipment routes is one of the best things you can do, but it is not the only play, there are many others,” we were told.

Still, well-located hub ports are central to the operating model of all global ports.

A well-located hub port must also be able to offer its customers access to a well-planned and scalable industrial zone, and, ideally, a free zone.

Again, the industrial zone offering has become critical to the modern port in so much as it enables companies to manufacture and assemble goods before and after shipping and distribution to global markets, while the free zone offers flexible

optionality around customs, saving invaluable time and cost. However, it is not only a game of ‘hubs’, but it is also important to “have a presence of some kind” in key ‘spokes’ where there are ports of strategic importance.

“You don’t have to be operating all the ports in the spokes for the hub model to be successful. You don’t have to invest and own a spoke as well,” we were told. However, you do have to invest heavily in connectivity at the ports that you elect to own and/or operate.

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THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

MULTIMODAL CONNECTIVITY: Sea, Air, Land, and Rail are a Must for Tomorrow’s Ports “Building a port is easy; building connectivity is not,” we were told by more than one respondent.

Connectivity is perhaps the single greatest element bearing on the success of any port.

Not just vessel connectivity, but also the larger network of transport, the web of air, rail, and motorway connections that are immediately adjacent to today’s most successful modern ports.

We heard that the world’s best ports move aggressively to ensure state-of-the-art connectivity is in place (or on the way) before the commissioning of a port. When the reverse approach is taken, it is usually the case that the port will sit idle for years until the connectivity is established, and that approach is very expensive for the government and private sector entities involved.

Infrastructure is critical to support physical connectivity, but services are equally important to optimise infrastructure. For example, a motorway is of no use, if there are no trucking services to support a port. It is the responsibility of the modern port to balance the import and export of the goods through its ports to ensure that service providers supporting the ports are not only in place but also incentivised to provide excellence in delivery.

We also learned that rail is an increasingly vital transport link supporting the ports of tomorrow,

and not because rail is, after shipping, the second least costly per tonne per kilometre method of transport.

“Modern ports need rail networks behind them to keep cargo off the motorways. It is just not efficient to ship them by road; you will choke up the roads. Superior rail networks evacuate large volumes for ports. We have seen this in Europe and North America for years, and we will soon see this in Asia and the Middle East.”

When commissioning ports – or making the case for further public spending to improve existing ports – government officials will want to know how the expenditures will benefit the local economy. In almost all cases, those arguments requesting public (and sometimes private) funding are quickly bolstered with the introduction of a manufacturing dynamic. Simply put: ports become more economically viable when they are co-located with industrial zones which support manufacturing, as manufacturing drives a cities productivity growth and innovation.

Multimodal connectivity comes faster to ports that have more cargo to move, both on water and behind the port, we learned. And, once a modern port has the right infrastructure in place, it really becomes a competition of excellence in service delivery.

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THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

PORTSIDE SERVICES: Diversification is a Differentiator Diversified and efficient portside services are worth their weight in gold, we heard from respondents.

“People are willing to pay a premium for the efficient delivery of portside services. The best example is Singapore. Comparatively, it is an expensive port, but it is extremely efficient so that the overall cost savings mean that it becomes quite cheap,” we were told by a leading international consultant.

Automation and PCS (Port Community System) technologies are examples of portside services that bring differentiation and competitive advantage to today’s global ports operators. These types of services enable the smooth movement of transportation, within a port for example, that has become synonymous with the operational efficiency of Singapore, Hong Kong, Hamburg, and Rotterdam ports.

Predictability is the watchword for the future. The better global ports operators become at predicting the needs of their customers, the lower their customers’ costs will be and the happier they will be, thus the greater their loyalty to those ports.

Enhanced predictability is entirely about increased and improved portside services.

However, pleased customers are those for whom global ports operators have provided an entirely holistic approach, not merely a transactional offering.

Modern ports realise that customers of tomorrow are increasingly interested in a one-stop-shop model of integrated service provision, from ports through to industrial zones, marine services, digital solutions, and logistics.

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THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

INTEGRATED SERVICES: The One-Stop-Shop Model is in Demand Legacy ports are less dependent on the one-stop-shop model of integrated service provision, while the modern ports of tomorrow will almost certainly start with manufacturing and industrial zones, multimodal connectivity, logistics and warehousing facilities, marine services, and technology at the centre of their thought processes.

“A port operator in a place like Shanghai doesn’t need to offer industrial zone services because there are so many adjacent facilities; it is not required and would not be expected. Their focus is on selecting the best location for a new port, in consideration of connectivity,” one respondent told us. “But in the Arabian Gulf, a port would be expected to be able to offer investors the full suite of services, from ports to industrial zones to logistics, and not just world-class connectivity.”

For example, Abu Dhabi Ports’ Khalifa Industrial Zone Abu Dhabi (KIZAD) attracts and enables trade, logistics, and industrial investments by leveraging the integrated services of KIZAD with Khalifa Port, the group’s flagship, deep-water port. Similarly, customers to Khalifa Port are drawn to KIZAD’s capabilities, which include extensive land, world-class infrastructure, free zone and non-free zone solutions, dedicated investor support, a tax-free environment with competitive operating costs, and a strategic location with access to regional and international markets.

Global ports have increasingly seized on the role that an enhanced logistics offering can play in providing customers with a fully integrated, end-to-end, supply chain management solution.

In fact, the logistics component is the most critical element in the one-stop-shop model as it enables the seamless, door-to-door dynamic that has become so valued in today’s global commerce.

Abu Dhabi Ports’ integrated logistics solutions, for example, deploy leading-edge technologies to solve the industry’s most pressing challenges while assuming a partnership-driven model, one which values shared success over time, rather than transactional outcomes.

Crucially, when a port is able to provide more robust customer solutions through the availability of one-stop-shop services, such as fully integrated logistics, the total cost of engagement with that port is lowered, and that makes that port – and the city in which it is based – far more globally competitive, agreed the experts with whom we spoke.

SUSTAINABILITY: Ensuring a Port’s Future for Decades to Come The port of tomorrow is fully committed to sustainable practices, and it has embraced the concept from the design stage, as it determines where and what it will build, but also who it will hire.

Once viewed almost entirely through the lens of cost and compliance, sustainability is now seen by today’s global ports operators as an opportunity to realise competitive advantage while making their industry a model for others to follow.

“Stakeholders are becoming sensitive to the issue of sustainability, especially as it relates to the environment. And global ports now realise that the environment is a non-negotiable issue. They view it increasingly as a one-time, upfront cost which has a long term benefit,” one respondent told us.

We learned that global ports of tomorrow are long term and responsible thinkers in their approach to growth, from assets to people. They are responsible stewards of the environments in which they operate, and this mindset shapes their thinking from construction to maintenance of all their ports.

Importantly, we found that they are particularly concerned about the continued development of their employees, the most valuable element of their service provision. Global ports of the future tend to invest heavily in their HR departments and apply a focus to recruiting and retaining of the best talent.

Again, all in the interest of improved and more sustainable business practices.

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THE FUTURE OF PORTS: WHAT’S BEHIND A GLOBAL PORT MATTERS MOST TO ITS STAKEHOLDERS

JANUARY 2021

CONCLUSION International political upheaval over the last four years has meant that the world’s trade lanes are shifting, and that there will be a commensurate impact on global ports. Accordingly, they must be “on their feet and constantly thinking ahead,” as one respondent told us.

Over the next decade, the global ports ability to maintain strong international partnerships; operate strategic global port locations; ensure multimodal connectivity via sea, air, land, and rail; offer

diversified portside services; provide integrated customer services, and incorporate sustainability into their planning processes will largely determine their individual levels of competitiveness, we found.

Where possible and practical, global ports are strongly encouraged to co-locate industrial zones to support a manufacturing base that will drive local and national economic development and provide fundamental support to the landside communities in which their ports reside.

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