Economic outlook for ports Theo Notteboom President and professor, ITMMA - University of Antwerp, Belgium President, International Association of Maritime Economists (IAME)

ESPO 2014- The European Sea Ports Conference Gothenburg, Sweden – 15-16 May 2014

EUROPEAN PORT TRAFFIC: SIGNS OF ECONOMIC RECOVERY?

The fragility of economic recovery

• Global economy’s dependency on exceptionally low interest rates.

• Threat of a bond market crash as the world's central banks try to return monetary policy to a more normal setting.

• Risk of resource conflicts

• Europe’s industrial challenge

• Confidence levels are up

• Eurozone crisis behind us

• Most industries have capacity in place to accommodate growth

• The global/European discussion on climate change creates new opportunities

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2006 2007 2008 2009 2010 2011 2012 2013 Q1 2014

Pe

rcen

tage

gro

wth

co

mp

ared

to

th

e p

rrev

iou

s ye

ar

Total throughput

GDP growth EU27/EU28

Year-on-year growth in total EU port traffic (basis = ton) and EU GDP

Traffic stagnation in 2013: -0.08% to 3.84 billion tons Moderate growth in Q1 2014: 1.46%

Note: growth figures 2013 and Q1 2014 are estimates based on a sample of about 60 European ports

Traffic peaked in 2008: 4.18 billion tons

EC projections GDP growth: +1.6% in 2014 and 2% in 2015 (Spring forecasts)

75

80

85

90

95

100

105

110

115

2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 2014

Ind

ex e

volu

tio

n -

20

08

= 1

00

Containers

Liquid bulk

Dry bulk

Conventional general cargo

Roro traffic

Total

Are we back at pre-crisis traffic levels? Index evolution of throughput in the EU port system (2008=100)

Only container volumes managed to get above the

2008 level (+7% in 2008-2013)

Dry bulk and conventional

general cargo on the path of recovery?

Total throughput is still about 7% below the 2008 level

Liquid bulk saw a minor drop in 2009, but

records further traffic decline after 2009

Distribution of cargo flows in the EU port system Increased containerisation and decline of liquid bulk

19.8%

39.6%

24.2%

6.2%

10.3%

2005

Containers

Liquid bulk

Dry bulk

Conventional general cargo

Roro traffic

22.8%

37.5%

23.5%

6.0%

10.2%

2008

Containers

Liquid bulk

Dry bulk

Conventional generalcargo

Roro traffic

26.0%

37.2%

21.3%

5.2%10.3%

2012

Containers

Liquid bulk

Dry bulk

Conventional generalcargo

Roro traffic

26.9%

33.4%

23.9%

5.7%10.2%

Q1 2014

Containers

Liquid bulk

Dry bulk

Conventional generalcargo

Roro traffic

Traffic growth distribution – Q1 2014 (based on number of ports per growth rate)

21%

10%

5%

12%14%

38%

Q1 2014 growth distribution ports - DRY BULK (n = 42)

< - 10%

-5 to -10%

-5% to 0%

0% to 5%

5 to 10%

> 10%

17%

7%

12%

14%14%

36%

Q1 2014 growth distribution ports - RORO (n = 42)

< - 10%

-5 to -10%

-5% to 0%

0% to 5%

5 to 10%

> 10%

24%

13%

22%

14%

8%

19%

Q1 2014 growth distribution ports - LIQUID BULK (n = 37)

< - 10%

-5 to -10%

-5% to 0%

0% to 5%

5 to 10%

> 10%

19%

3%

13%

31%

9%

25%

Q1 2014 growth distribution ports - CONTAINERS TEU (n = 32)

< - 10%

-5 to -10%

-5% to 0%

0% to 5%

5 to 10%

> 10%

EUROPEAN PORT TRAFFIC - OUTLOOK: KEY DRIVERS

Weak oil refining capacity outlook for Europe

• Global refining system: 7.2 mb/d of new crude distillation capacity (to be) added in the period 2012-2016 => virtually no additions in Europe

• Largest proportion of closures – around 1.7 mb/d – has so far occurred in Europe.

• Still, industry will continue to experience a capacity surplus, one that has been

gradually building since 2009.

Distillation capacity additions from existing projects 2012–2016

Source: OPEC, World Oil Outlook

A changing energy mix

• Expected growth renewables and biofuels till 2030: 7.6% per annum

• Tight oil and oil sands: ~13% of global liquid energy supply in 2030 (North America!)

• Shale gas revolution: self-sufficiency for N-America + impact on industry location/coal price

• European gas demand: share of net imports (LNG + pipeline) in total demand will increase from 50% today to around 80% in 2030.

Power demand 1990-2030 (Source: BP, Energy Outlook 2030)

Changing energy mix: LNG as a bunker fuel

• LNG demand for bunker fuel - main recent forecasts (Source: based on GDF Suez analysis)

• Global demand of LNG as a fuel for maritime shipping: 20-30 mtpa between 2025-2030

• Logistics are costly, slim margins because LNG is in competition with HFO + scrubbers

• Progressive spread of ECAs vs a limited renewal rate of the world fleet

• Role PAs in overcoming ‘chicken and egg’ problem

The steel industry

Source: SMRL and BHP Billiton

Stainless steel consumption to 2028 (kg per capita)

Steel Use, finished steel

Source: World Steel Association (2014)

The rising importance of traders in directing cargo

flows

Source: Meersman, Rechtsteiner and Sharp (2013)

Traders become more asset-based (also terminals)

Traders’ game: example of impact of blending

decisions on port activity

Distribution based on RDCs Distribution based on one EDC

Distribution based on tiered system (EDC+RDCs)

Towards new waves in distribution networks?

24h rule Double and triple EDC

DC bypass Impact e-business, 3D printing

THE CONTAINER MARKET

Regional shares in total TEU of the European container port system

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Sh

are

in

to

tal co

nta

iner

thro

ug

hp

ut

Hamburg-Le Havre range

Mediterranean range

UK range

Atlantic range

Baltic

Black Sea

Source: Notteboom - ITMMA

Growth TEU Q1 2014

0.94%

18.48%

5.81%

1.51%

3.35%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Hamburg-Le Havre range (8 ports)

Atlantic (4 ports)

Med (14 ports)

Baltic (7 ports)

TOTAL

Growth Q1 2014

Source: Rapid Exchange System (RES) data

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26%

1. Rhine-Scheldt Delta

2. North Germany

3. Seine Estuary

4. Portugese Range

5. Spanish Med range

6. Ligurian Range

7. North Adriatic

8. UK Southeast Coast

9. Gdansk Bay

10. Black Sea West

11. South Finland

12. Kattegat/The Sound

Stand-alone gateways

West Med hubs

200820122013

Shares of multi-port gateway regions, pure transhipment hubs and stand-alone gateways in

the European container port system

Source: Notteboom - ITMMA

Shares of multi-port gateway regions in European container port system

Comparison of total TEU and gateway TEU (excl. T/S)

Source: Notteboom - ITMMA

24.1%

15.8%

2.6%

1.8%

6.7%

4.1%

1.9%

6.4%

1.7%

0.9%

1.4%

1.7%

11.7%

10.7%

23.9%

14.8%

3.1%

2.0%

5.5%

5.6%

2.7%

8.6%

1.6%

1.1%

2.0%

2.5%

13.1%

1.1%

00% 05% 10% 15% 20% 25% 30%

1. Rhine-Scheldt Delta

2. North Germany

3. Seine Estuary

4. Portugese Range

5. Spanish Med range

6. Ligurian Range

7. North Adriatic

8. UK Southeast Coast

9. Gdansk Bay

10. Black Sea West

11. South Finland

12. Kattegat/The Sound

Stand-alone gateways

West Med hubs

SHARE IN TOTAL GATEWAY TEU (2012)

SHARE IN TOTAL TEU (2012)

Transhipment incidence in ranges of European port system

0% 10% 20% 30% 40% 50% 60% 70%

Hamburg-Le Havre range

Atlantic range

Mediterranean range (EU)

UK

Baltic

Black Sea (EU)

TOTAL EU

Transhipment incidence (%)

2004

2008

2012

The adaptive power of ports? Ports able to receive ultra large container vessels of 15,000 -18,000 TEU (DNV, 2014)

Mary Maersk (18,000 TEU) and Evelyn Maersk (15,000 TEU) at Deurganckdock – Antwerp - 19 October 2013

Dynamics in alliances (G6, P3, ..) • Not all eggs in one basket • Access to markets is key • Involvement in and reconfiguration of terminals

The intermodal challenge

• Hinterland coverage:

- Advances in intermodal solutions for local/regional hinterland (extended gates, etc..)

- Going beyond the ‘comfort zone’ remains difficult

• Trunk lines to gateway ports: large scale co-modality is concentrated

- More than half of total European container traffic by rail is concentrated in 6 ports

- About 90% of European container traffic by barge is linked to Antwerp and Rotterdam

- Overcoming the critical mass challenge by bundling cargo from multiple ports in inland centres

Conclusions

• EU port traffic volumes are still below 2008 levels (except for containers), although big differences exist between ports

• 2013: zero growth -> decline in liquid bulk offset by moderate growth in other traffic categories

• Forecast 2014: overall growth in European port system of 1.8% to 2% - Containers (tons): +3% to +3.5%, liquid bulk: -2.5 to -3%, other categories: +3 à +6%

• European port system is still somewhat fragmented + co-modality challenges

LINKING TO PORTOPIA PORT TRAFFIC INDICATORS AND MUCH MORE

Warm invitation to join the (new) Rapid Exchange System

00%10%20%30%40%50%60%70%80%90%

100%

Total Solid bulk Liquidbulk

Generalcargo(total)

Containers(ton)

Containers(TEU)

Representativeness of sample of ports in RES - year 2012(% in total European port traffic)

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Thank you for your attention !

theo.notteboom@uantwerpen.be

www.itmma.ua.ac.be www.porteconomics.eu

www.portopia.eu