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27/02/2018 – Mobility Series / Ports & Terminals / Global

The evolution of global trade gateways

As vital thresholds between land and sea, ports inevitably have an integral part to play in an increasingly global economy. A new report from Deloitte identifies the evolving role of the port, as well as trends and drivers in the sector up to 2030. Shifts towards more sustainable practices, emerging innovations in automation and manufacturing, and the growing responsibility of port authorities all loom large in a world that such facilities help to bring closer together. James Midgley reports.


The average distance travelled by exported goods has been rising for many years now. These distances, rather than underscoring the remoteness of the globe’s corners, point towards something else: while goods and people are travelling further (and more often) than ever, the world is becoming smaller. 


Trade is clearly the life-blood of this globalisation process. A 2011 research paper by Professor Michael Bleaney and Dr Abelardo Salazar Neaves of Nottingham University found that, while exports to further locations have increased, barriers to truly remote locations have comparatively decreased. Remoteness, land area and lack of access to the sea have substantial impact on transport costs. In short: globalisation lives and dies alongside ease and cost of trade – and ports and terminals are the primary infrastructural facilitators. 


Globalisation is just one of the trends marked out by Deloitte’s new report, with other major shifts noted in the transition to greener fuels and the shift to more sustainable practices, the greater use of automation and interlinked systems, alongside the changes in structural requirements of ports and port authorities. At root, however, all such trends point towards one main theme: ever-increasing interconnection for the world’s gateways between land and sea.


Rise of the emerging world


As developed nations have begun to stagnate, reaching out towards Africa and Asia has become ever more crucial for established businesses looking to increase revenues. Likewise, Africa continues to strengthen its infrastructure to better handle the outflow of its commodities – to, for example, China, whose manufacturing houses ship across the globe (as well, for that matter, back to Africa). 


According to the report, Asia’s share of world GDP is expected to rise more than 40 per cent in the years up until 2030. China is at the top of the list for export values, with over US$2 trillion, and second only to the US for imports. As follows, China is heavily dependent on shipping companies and port infrastructure, receiving raw materials on the one hand and dispatching finished products on the other.


President Xi Jinping’s ‘Belt and Road Initiative’, unveiled in 2013, is much in line with China’s efforts to take a larger role (and have greater control) in trading infrastructure, with projects spanning more than 68 countries. As one unnamed European shipping executive said to the FT, “It’s pretty clear that China wants to be number one.” 


China’s ‘Maritime Silk Road’ is not just aimed at Europe. Global trade routes will continue to shift towards the Asian continent, notes Deloitte’s report, while increased trade between Africa and Asia will necessitate further improvements to African port infrastructure – as well as to the regulatory framework intended to attract Asian investors. Here ‘regulatory framework’, as the report puts it, is also a subtle nod to the need for checks and preventive measures against corruption to ensure investments are properly spent.


As Asia’s power as a manufacturing hub continues to grow, so too do a scarcity of natural resources make the efficient outflow of Africa’s raw materials ever more important. Given that as much as 90 per cent of all global trade is facilitated by the sea, the need for Africa to further augment its under-developed port – and connecting inland logistical – infrastructure cannot be emphasised enough.


Fuelling sustainability


Scarcity of materials is set to do more than alter the paths of trade routes. Efforts are being made the world over to transition towards renewable forms of energy – a fact that will indirectly impact the role of ports as gateways for fuel transportation. Since 2009, the cost of solar energy has dropped by 62 per cent; likewise, offshore wind costs reached just £57 (less than US$79) per MW last year. 


Ms Jennifer Delony of Renewable Energy World expects that trend to continue. “It’s just the sheer power of competition in those auctions,” she said, “and I expect that competition to keep barrelling forward next year.” Even China, the world’s biggest polluter, is pushing ahead with plans to increase solar capacity. It is already leading the world in solar generation capacity, with plans to invest £292 billion (US$403bn) in renewable energy by 2020.


As follows, the quantities and kinds of fuel transported through shipping routes are expected to change substantially. Biofuels and bio-based chemical products will occupy a larger space in the hold, while middle distillates and gas will play a bigger role in fuelling shipping itself. As electric vehicles gain in popularity – and charging infrastructure finally begins to come closer to requirements – automotive fuel consumption will also diminish, as will ports’ handling of it. Biomass and LNG will instead represent new cargo flows.


Ports – for long at the centre of both power-intensive demand and supply activities and fuel transportation – will have to adapt accordingly. Increasing renewable energy installations in port areas and greater use of alternative fuels such as LNG are part of that necessary evolution, but so too are active energy management considerations. Such measures are especially vital to meet increasingly stringent environmental regulations.


Adapting to complexity


Even bigger changes may lurk over the horizon for shipping cargo flows. 3D printing may potentially remove much need for the shipping of final products, Deloitte’s report warns. According to Dutch bank ING, 3D printing is expected to account for nearly a quarter of world trade as soon as 2040, while ParcelHero’s Head of Consumer Research, Mr David Jinks, suggested that “Not only will small domestic 3D printers make possible the downloading and manufacturing of everything from spare parts and toys, to kitchen utensils and clothing; but stores with printers far larger than those in the home will open in the same way photo-copy shops sprang up 30 years ago.”


Deloitte’s report points towards the recent expansion of the 3D printing market, which grew more than four-fold between 2014 and 2018 – at a CAGR 

of 45.7 per cent. Through the new technology, manufacturers are already finding themselves able to move towards zero-inventory – with substantial savings on warehousing and, of course, logistics. Cargo streams will continue to shift to adapt to such changes, with greater shipment of raw materials rather than end products.


While developments in energy and manufacturing impact trade flows, information flow has to adapt in other innovative ways.A study from BVL International shows the increasing complexity of logistics chains – a situation only likely to be exacerbated as trade becomes further globalised. “A number of major challenges lie ahead as the world becomes a more complex place in which to operate logistically,” said Dr Robert Handfeld, Professor of Supply Chain Management and the study’s lead author.


Digitalisation is being tasked with handling ever-expanding information streams and, increasingly, organising such complexity. ‘Soft’ infrastructure such as appropriate digital networking has the power to greatly enhance efficiency – perhaps even negating the need for further investment in hard assets. 


Automation via smart networks


Advanced data analytics will power the next wave of automation, too, as algorithmically self-steering ships become the norm and the precision provided by sensor technology replaces the need for towing. Greater efficiency will make unnecessarily empty holds a thing of the past.


In the case of container terminals, practices and sub-processes already highly automated will benefit from greater degrees of interaction – and increased connection with other port systems. In particular, technological developments are expected to impact the automation of quay cranes, which are still largely operated by dedicated personnel. 


While increased automation and data-dependence will drastically reduce human error, there are drawbacks to consider. Interlinked systems run the risk of permitting far-reaching access for skilled hackers. Drug smugglers, say, might be able to disable surveillance systems and interdiction fail-safes well in advance. As such, cyber-security is more important than ever – and, as Deloitte’s report highlights, depends on educating through an ICT-aware work culture as much as it does on technological countermeasures. 


It follows that ports and terminals will gravitate towards staff with deep knowledge of STEM subjects as the systems deployed require greater specialisation. Mr Howard Flint, Managing Director of recruitment specialist Omni RMS, opines that “traditional methods of recruitment are of little use when faced with such a widespread deficiency in talent.” That lack, as well as increasing competition, will further internationalise ports and their workforces. According to the World Economics Forum, 40 per cent of Chinese graduates finished in 2013 with a STEM degree – more than double the amount in the US. And India followed just behind. 


A more active role for authorities


As the systems of ports and terminals become more interconnected, so too must logistics more broadly – and port authorities will play a larger role in the organisation and management of such links. Connections to the hinterland are becoming a port’s most important asset, Deloitte’s report advises, so transport collaborations, joint ventures and increasing globalisation of shipping companies, logistics providers and terminal operators will continue. Those partnerships and tie-ups will win greater bargaining power for the biggest players.


The port authority is already more involved than ever in active value generation as a participant in supply chains. Authorities increasingly look to facilitate business and industry by accommodating larger vessels, providing attractive packages, and collaborating in the creation of economic free zones in close proximity.


Indeed, the size and capacities of ships, trains and trucks continues to grow, with enormous 22,000TEU vessels already at the design stage. At present, however, few ports are properly equipped or constructed to deal with such behemoths of the sea. Ports must begin work as soon as they can if they wish to maximise opportunities and implement the necessary infrastructural projects – developments that typically take 15 years to reach completion, the report points out. 


Better insight into inventories and transport flows and greater cross-port cooperation will allow further optimisation of supply chains. Indeed, good connectivity – the province of ports since the earliest days of seafaring – remains a top priority and the common denominator in most of these trends. Ports are the staging ground of the interpenetration between local and global supply chains. Over the next decade, that process of interconnection will hasten – and port organisations will remain at the heart of overseeing its development.

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