Rowan Fraser

At average cruising speed, a container ship crosses the Pacific in 20 days.  A transpacific cargo ship, for example, sails from Los Angeles and calls into Taiwan 19 days later, and into Hong Kong two days after that.  Singapore is a major port in the region, as is Shanghai – the largest port in the world.

Makassar city and its port

The port in Makassar, a secondary city of 1.4 million on the coast of Indonesia’s Sulawesi island, is much smaller.  But there are plans for expansion. ‘We want to make Makassar New Port a hub for eastern Indonesia,’ said Herman Harianja, head of operations for Pelindo IV, one the central government’s port corporations.  The project will be jointly financed by Pelindo, the local government and private sector investors.

Indonesia is an archipelago and 75 per cent of its territory is sea.  This single country has over 14 per cent of the world’s total coast line: a truly maritime nation.  There are over 300 ports scattered across the territory, of which the four largest are the ports of Jakarta, Surabaya, Belawan and Ujung Pandang.  Inter-island shipping is the prevailing means for distributing goods through the ports (as opposed to rail or road).  And about 90 per cent of Indonesia’s external trade is transported via seaports.

In eastern Indonesia, Makassar is the biggest port both in term of cargo handling facilities and total number of containers processed.  While eastern Indonesia has only 40 per cent of the country’s ports, it moves almost 90 per cent of the country’s container handling.  And the region is growing fast.  ‘We expect them to issue the permit [to build] as soon as possible, as we have to keep up with the economic growth,’ Harianja said.

The current plan, worth USD 637 million, would see Makassar expand its facilities and operational capacity to become one of the country’s gateway ports.  The project team are eager that Makassar avoids the congestion and inefficiencies of Jakarta’s port, thought to be due to rapid growth without adequate capacity and planning.  Consequently, the project is expected to double Makassar port’s handling capacity from 600,000 TEUs to 1.2 million TEUs (a TEU is a unit of volume roughly equivalent to a twenty-foot shipping container).  To contextualize that number, Shanghai processed 32.5 million TEUs in 2012, Los Angeles processed about 8 million and Jakarta about 6.5 million.

Implications of changes in the global shipping industry for smaller ports

Competitiveness is central to ASEAN’s push for increased seaport integration and maritime shipping.  This is a key agenda of the subregion and one considered ‘crucial to trade.’ ‘Sea-borne freight’, notes ASEAN’s website, ‘is by far the most cost competitive mode for trade compared to highways, rail or air.’

In part this is due to Asia’s geography: ‘Asia has many countries with very long coastlines and island states,’ points out Adolf Ng, an expert in Asian ports and maritime transportation from the University of Manitoba.  ‘Maritime transportation is essentially Asia’s only realistic outlet to the rest of the world.’  This means that as trade into and out of Asia increases, shipping must necessarily also increase – at least until viable land based alternatives are developed.

But beyond geography there are a number of changes in the global shipping business which are putting increasing pressure on ports and ports cities for improved performance.  ‘Since the 1990s, there have been three major developments in global shipping, all with significant implications for ports and port cities,’ says Olaf Merk, Director of the OECD Port-Cities Programme.

‘Over the last decade the average capacity of a container ship has doubled,’ Merk notes. ‘As a result, ports need to be deeper, with longer quays, wider cranes and more space for stacking. Not only the traditional form of ports but also their location close to city centres becomes less functional.’

A second major change in Merk’s view is global consolidation of the shipping industry.   ‘Large shipping lines do not hesitate to shift traffic from one port to another if they are not happy with the performance of a particular port.  These shipping lines have no special attachment to particular ports or port-cities and they generally tend to care less about local employment or creating value added.’  This means that ports have to maintain a high degree of efficiency and good performance, or they risk loosing business in the global market.  It also means that port-cities have to provide infrastructure to support hinterland transportation (by rail or land), also a key component of effective port cargo handling.

The third development is vertical integration.  ‘Shipping lines have become integrated with other parts of the transport chain,’ Merk says.  ‘This includes terminal operations, freight forwarding services, freight railways and trucking companies. For ports, it has become increasingly important to be integrated in these supply chains in order to be competitive.’

Financing efficiency

The overriding result of these changes, at least for ports and port cities, is a focus on the efficiency, performance and connectivity of ports.  This brings challenges to smaller ports saddled with poor infrastructure and inefficient logistics systems.  Unfortunately its these same ports, usually located in secondary cities, which have the most difficulty securing investments.

‘Many secondary ports suffer from inadequate funding,’ says Ng.  ‘They therefore struggle to acquire the necessary infrastructure for development.  They also usually lack the necessary professional management skills for enhancing efficiency. This is not helped by the relative lack of interest from multinational port operators in terms of improving investments and operations.’  As a result, many smaller ports struggle to keep abreast of global changes and new shipping requirements – and risk getting put out of business because of it.

Banks are often also reticent to invest, reports Ng.  ‘Investments in ports are highly capital-intensive,’ he says, ‘and there is no guarantee that users like the major shipping lines are going to use the port – even after large capital investment.’ As a result, smaller ports are often overlooked for funding by the larger multinational shipping firms, and can’t provide adequate guarantee to banks and international financing firms of consumer interest.

This, in Ng’s view, means that governments have to play a greater role.  ‘In my opinion, government (either national or local, or both) should be the first to act. They should provide the initial funds which kick start the port’s development, while at the same time providing some incentives (like guarantees and tax holidays) so as to attract investors.’

Ports versus port-cities

However, the interaction between ports and their local governments is complicated and can lead to conflict on a number of fronts.  Port authorities and municipal governments do not necessarily have the same interests and goals, especially in terms of policy.

Ports are concerned with cargo handling and strategies for improving the efficiency and quantity of cargo handled.  They want to invest in transport systems and networks.  They seek labour efficiency and want land dedicated to cargo handling and port-related industries.  Environmentally, they are mainly concerned with limiting negative impacts – mainly in terms of air pollution from the ships.

Port cities, on the other hand, are concerned with broader urban development issues.  With  regards to the port, municipal governments want to see the port create as much value added as possible, but they are not so interested in port efficiency.  For labour, municipal governments want the port to employ as many people as possible, to generate new jobs, preferably high valued added jobs.

If ports want better transport systems for freight, port cities want better passenger transportation which is largely more important for their constituencies.  Municipalities also favour housing development, and in this sector waterfront housing is always highly regarded.  In terms of environmental policy, municipal governments tend to go beyond simply limiting the negative impacts of ships, to actively promoting higher quality of life for which clean air, water and good parks are key.

‘The challenge,’ Merk says, ‘is for port cities  to find synergies between these two perspectives.’ Such synergies will help secure funding for joint operations between the port-city and the port, many of which are crucial t the city’s economy.  Doing so requires input from a range of stakeholders, as well as decent capacity at local government, plus provincial and national government support, private sector buy-in and community endorsement.  Needless to say, this can be difficult to achieve.

Spatial development strategies for cooperation and growth of smaller ports

In this regard, smaller ports may have an easier job than larger global ports in ASEAN.  As Merk notes, ‘not every port can be hub port and not every port should aim to be a hub port.’  Hub ports are the ports receiving the major shipping lines and the huge cargo ships – many of which are simply too big to fit into smaller ports, like Makassar.  In Merk’s view, there is nothing wrong with being a good feeder port (which gathers local cargo and transports it to a larger port), a regional gateway port (which acts as the main port for a region) or a niche port (which specialises in a certain type of cargo or port activity).  Indeed, such ports may create more local value added because they are often more locally owned and operated.

There are many feasible strategies for balancing the growth of ports against wider urban development agendas of port-cities.  Appropriate strategies will depend on the needs of the port and its city.  Such strategies can include:

  • Moving the old port to another coastal area can make sense if the opportunity costs of the land required for expansion are very high due to high demand.  Residential and commercial real estate markets in many cities, especially fast urbanizing secondary cities, are increasingly buoyant.  Given the large areas of land that ports need, moving the port may make long-term sense.  This releases often prime waterfront real-estate for redevelopment.
  • Urbanizing part of the port area by creating more public access and amenities around the port.  Amenities include parks, beachfronts, and public spaces.  Such urbanization initiatives can join to the more public functions of the port, such as the passenger terminals. This helps create better interaction between the port and the city, dissolves the often hard boundaries between the two and generally improves spatial relations.
  • Improving land transport connections through the use of rail and road-based systems which connect to the port facilities and can speed up distribution of goods into and out of the port.  This can include creating dedicated freight corridors along coasts and harbours for improved sea access to the ports. This can reduce the number of trucks using city highways and roads, or separate cargo shipping lanes from recreational shipping.
  • Creating port-networks of smaller ports which feed into the larger hub port is also an option.  This requires improving information exchanges, port community systems and joint environmental management of port facilities, as well as joint marketing and promotion.
  • Reclaiming land so that ports can move outwards into the bay. This can involve the extension of land and quays, or the creation of new islands for the port operations and takes pressure off the city ‘behind’ the port as a site for expansion.
  • Creating buffer-zones which shield the residential parts of the city from the activities of the port.  This may include zones of light manufacturing and office buildings, or spaces of parkland.
  • Steering residential development so that it moves away from the port over the long-term.  This can reduce tension between the port and local communities’ housing requirements, as well as free-up land for port expansion in the opposite direction in the future.

Some of these strategies will be deployed in the Makassar scheme.  For one, the port will expand into two new 100-hectare lots further up the coast from the city.  It is also looking at some smaller warehouse sites to store additional cargo.  Further, the plan involves land reclamation, improved road access to the port for better land transportation of cargo out of the port. Some quays will be deepened so that they can receive bigger ships.

Will this initiative improve the efficiency and competitiveness of the port?  It does seem likely. And this is certainly an area where Indonesia’s ports fare badly as compared to other ASEAN countries.  Costs, especially, are high.  Its almost twice as expensive to move cargo through an Indonesian port (USD 150 per TEU) than a Thai port (USD 60).  Malaysia’s ports average USD 90 for this same service, and Singapore USD 107.

But this is not just a question of infrastructure.  Systems, professional conduct, transparency, management capacity and a host of other aspects influence competitiveness in ports.  It is hoped though, that in the case of Makassar, improving the infrastructure and sorting out some of the spatial issues for long-term development can come first.

‘The outlook for ports in Asia should be optimistic,’ Merk concludes.  With construction beginning soon, this certainly seems to be the case for Makassar city’s port.

Banner photo by Tagishsimon

Photo 1 by Aaron Jacobs

Photo 2 by Chensiyuan

 

 

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Categories: Infrastructure, Transportation