Transportation Summit 2011: Best Practices Shaping Global Logistics, Vancouver, BC, March 2-3 2011

Benchmarking the Canadian Gateways and Corridors Governance Model

Jean-Paul Rodrigue1 & Stephen Blank2

1 Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA; Van Horne Researcher in Transportation and Logistics, University of Calgary, Canada

2 Adjunct Research Scholar, Center for Energy, Marine Transport and Public Policy, Columbia University; Senior Research Analyst, Arizona State University’s North American Center for Transborder Studies

Benchmarking the Canadian Gateways and Corridors Governance Model

1• How does governance applies to

intermodal transportation?

2• Which governance criteria can be used

for benchmarking?

3• To what extent gateways and corridors

are an effective governance strategy?

Intermodal Transportation: Emerging Paradoxes

Geographical and functional diffusion of containerization.Massive investments.

Rationalisation (corridors and sites).

New standards, practices and technologies.Increasing returns.

Revolution

Growth Maturity

Incremental changes.Decreasing returns.

Evolution

Consolidation (maritime, rail and trucking). Emergence of large operators.

DeregulationPPP. Supply chain control. Added-value-capture.

Governance

Main Causes of Public Divesture in the Transport Sector

Fiscal Problems

(we’re broke)

High Operating

Costs (we have few incentives)

Cross-subsidies(profits are

spent elsewhere)

Equalization (everyone must have their fair share)

Governance and Supply Chains Don’t Match

Extraction Processing Fabrication Assembly Distribution Retailing

Logistics Chain 1

Transport Chain 1

LC 2 LC 3 Logistics Chain 4

TC 2 TC 3 TC 4 TC 5

Governance and Intermodal Transport: Potential Benchmarks

Criteria Economic Sector Intermodal SectorParticipation Involvement of private capital Access to intermodal assets (modes &

terminals) by the private sector (national and foreign)

Transparency Clear regulatory process Available information about policies and actors

Fairness Consistent regulations Policies in line with modal market potential

Decency Secure property rights Secure ownership and operational contracts

Accountability Measures for litigation Intermodal operators complying to policiesTerms for renegotiation

Efficiency Limited compliance costs Compliance costs below operating revenues

Transport Terminal Governance: Main Benefits and Issues

• Profit / Externalities

• Performance / Productivity

• Monopoly / Rent seeking

• Compliance / Accountability

Public Ownership

PrivateOperations

PPP

The Governance Setting of Gateways and Corridors: Many Actors Supporting Functional Integration

Corridors and Hubs

Gateways

Maritime Freight Distribution

Inland Freight Distribution

Port System

Road Rail Coastal / Fluvial

Hinterland (Inland Ports)

Maritime shipping companies (Private).

Waterways and navigation channels (Public).

Terminal operators (Private).Port operations (Port Authority).

Land ownership (Public and Private).

On-dock rail (Port Authority and terminal operators).

Near-dock rail (Rail companies).Trucking and barging (Private).Roads and highways (Public).

Rail lines (Rail companies; ownership or right-of-way).

Transport Actors

Security Trumping Trade? Maritime Security Initiatives Implemented by The United States

Initiative Type Year Description

Automated Targeting System (ATS)

Cargo screening 1999 Weighted model applied to inbound cargo manifests to assign risk factors.

Customs-Trade Partnership Against Terrorism (C-TPAT)

Certification 2001 Transferring some of the Customs responsibilities to importers and exporters to reinforce overall security levels. Benefits include reduced likelihood that containers of participating firms will be examined.

Container Security Initiative (CSI)

Cargo tracking and screening

2002 Increasing security related to ocean going containersthrough the targeting and screening of high risk containers bound for the US before they are loaded.

Megaports initiative Cargo tracking and screening

2003 Installation of radiation detection equipment in key foreign ports. Reducing the illicit trafficking of nuclear and other radiological materials.

24 hour rule Advance cargo information

2003 Implementing the cargo-related information at least 24 hours before a container is loaded aboard the vessel at the last foreign port.

Standards to Secure and Facilitate Global Trade (SAFE)

Certification 2005 Implementing C-TPAT and CSI security practices with foreign trade partners.

Importer Security Filling and Additional Carrier Requirements (ISF, 10+2)

Advance cargo information

2009 Implementing the collection of cargo-related information by requiring information from both the importer (10 information elements) and the carrier (2 information elements) to be transmitted at least 24 hours before the goods are loaded.

100% scanning Cargo screening 2012? Non-intrusive inspection of 100% of all inbound cargo containers.

Pressures for Governance: Vertical and Horizontal Integration in Port Development

Commodity Chain

Port Holding

HorizontalIntegration

Intermediate hub

InlandPortPort

PortRail / BargeDistribution Center

Inland Modes and Terminals

Distribution Centers

Maritime Shipping

Port Terminal Operations

Terminal

Maritime Services

Inland Services

Port Services

VerticalIntegration

Governance Changes in Port Authorities: Competing over the Hinterland

Landlord

Regulator

Operator

• Planning and management of port area.

• Provision of infrastructures.

• Planning framework.

• Enforcement of rules and regulations.

• Cargo handling.• Nautical services

(pilotage, towage, dredging).

Landlord

Regulator

Operator

Terminal Operator(s)

Cluster Governance

• Service Efficiency• Logistical Integration

• Infrastructure and Growth

Management• Terminal-City

Integration

Conventional Port Authority Expanded Port Authority

Value Propositions behind the Interest of Equity Firms in Transport Terminals

Diversification(Risk mitigation value)

Source of income(Operational value)

Asset (Intrinsic value)

Terminals occupy premium locations (waterfront).Globalization made terminal assets more valuable.Traffic growth linked with valuation.Same amount of land generates a higher income.Terminals as fairly liquid assets.

Income (rent) linked with the traffic volume.Constant revenue stream with limited, or predictable, seasonality.Traffic growth expectations result in income growth expectations.

Sectoral and geographical asset diversification.Mitigate risks linked with a specific regional or national market.

Risk Transfer and Private Sector Involvement in Public-Private Partnerships

Design - Build

Degree of Private Sector Involvement

Degr

ee o

f Priv

ate

Sect

or R

isk

Operation & Maintenance

Build-Finance

Design-Build-Finance-Maintain

D-B-F-M-Operate

Concession

PrivatizationPP

P M

odels

Privatization and Financing Models

Sale or concession agreement

Divesture part of a political agenda (budget relief).Public sector is forced to sell or lease some of its infrastructures.Infrastructure is transferred on a freehold basis.Requirement; used for its initial purpose.Long term lease (50 – 75 years).Requirement that the concessionaire maintains, upgrade and build infrastructure and equipment.

Concession for new project

Tap new sources of capital outside conventional public funding.Fiscal restraints.Experiment with privatization.Getting the latest technical and managerial expertise for the infrastructure project.

Management contract

Ownership remains public.Management given to a private operator.Through a bidding process.Popular in the terminal operation business (maritime and rail).Efficiency improvements.

Typology of Global Port Operators

Stevedores Maritime Shipping Companies

Financial Holdings

Horizontal integration Vertical integration Portfolio diversification

Port operations is the core business; Investment in container terminals for expansion and diversification.

Maritime shipping is the main business; Investment in container terminals as a support function.

Financial assets management is the main business; Investment in container terminals for valuation and revenue generation.

Expansion through direct investment.

Expansion through direct investment or through parent companies.

Expansion through acquisitions, mergers and reorganization of assets.

PSA (Public), HHLA (Public), Eurogate (Private), HPH (Private), ICTSI (Private), SSA (Private).

APM (Private), COSCO (Public), MSC (Private), APL (Private), Hanjin (Private), Evergreen (Private).

DPW (Sovereign Wealth Fund), Ports America (AIG; Fund), RREEF (Deutsche Bank; Fund), Macquarie Infrastructure (Fund), Morgan Stanley Infrastructure (Fund).

Container Terminal Portfolio of the four Main Global Terminal Operators, 2010

Top ten terminal operators: 65% of the world’s total container handlings

The Governance of Gateways and Corridors is Effective if it Reflects a Functional Reality

The North-American Container Port System and its Multi-Port Gateway Regions

1

2

6

5

4

3

7

Multi-port gateway regions1. San Pedro Bay2. Northeastern Seaboard3. Southwestern Seaboard4. Puget Sound5. Southern Florida 6. Gulf Coast7. Pacific Mexican Coast

Major Rail Corridors Improved since 2000

Conclusion: Gateways and Corridors Governance in a New Global Economic Setting

A• Growing complexity of supply chains and

governance.• The “last regulatory mile”.

B• Port authorities and terminal operators as active

actors.• Setting of functional corridors.

C• Finding value to capture and capital to finance.• Governance as a risk mitigation strategy.